Moody's outlook upgrade for trio

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Moody's Investors Service has upgraded the ratings outlook of three Hong Kong banks from negative to stable, reflecting the SAR's improved operating environment that reduces the threat of heavy loan-loss provisions and high funding costs.

The three banks are Bank of East Asia, Dao Heng Bank and Wing Hang Bank.

Bank of East Asia is rated by Moody's at Baa1 for its long-term foreign and local currency debt and deposits, Prime 2 for its short-term foreign currency deposits and D plus for its financial strength.

Moody's noted that as the bank had a higher-than-average exposure to the mainland, its risk profile should also be above average.

Loans to mainland-related borrowers accounted for 11 per cent of its total loans, more than double the amount held by other SAR banks without mainland ownership.

'The ratings incorporate Moody's expectation that Bank of East Asia will continue to have above-average problem loans, in combination with its below-average loan-loss reserves which will keep earnings below par and below many of its peers this year,' the agency said.

The agency said the stable ratings outlook it assigned to the bank reflected the improved operating environment in Hong Kong as well as better conditions in Malaysia.

The improved Malaysian conditions were crucial because they reduced the chances of Dao Heng's controlling shareholder Guoco Group shifting capital there to support its financial operation, the Hong Leong Group.